A Nasty Side Effect of Switching Brokers – Lost Cost Basis Information

A Nasty Side Effect of Switching Brokers – Lost Cost Basis Information

I found out a terrible and time consuming problem when I was forced to switch from TradeKing to Fidelity my cost basis does not always transfer! Imagine my surprise when I signed into my fidelity account and found all my stocks moved over from my mostly dormant TradeKing account, but no Cost Basis Information!

Why is Cost Basis Information Important?

To understand why cost basis is so important one first has to understand what it is. Investopedia defines Cost Basis as,

The original value of an asset for tax purposes (usually the purchase price), adjusted for stock splits, dividends and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset’s cost basis and the current market value. Also known as “tax basis”.

In other words, for all intents and purposes, when dealing with a non-qualified investment account one’s cost basis is usually their purchase price. But why would you need to know your cost basis on an investment asset?

Cost Basis and Capital Gains Taxes

Anyone that has ever done their own taxes knows that there are two types of Capital Gains Taxes; Long Term Capital Gains and Short Term Capital Gains. The two types are differentiated as to how long the asset is owned by the individual; long term capital gains is taxed at a lower rate (5%/15% Depending on your marginal rate vs. ordinary income tax brackets which can be as high as 35%).

Capital gains tax is owned on the difference between the amount the asset is sold and your cost basis. Like most things in life I think the best way to understand the topic is with an example:

Example: You buy 100 shares of XYZ at $35, paying $3,500 plus a brokerage commission of $20. Your basis is $3,520. Later, you sell when the stock is at $39. You receive $3,900 minus a brokerage commission of $20, so your amount realized is $3,880. Your capital gain is $3,880 minus $3,520, or $360.

However, when you can’t document your basis, it is assumed to be zero. So there could be a situation where I owe a healthy tax bill when it is not justified.

Has anyone had a similar problem? How did you resolve not having your cost basis transfer?

I have an out of the box idea that I haven’t verified that I am allowed to do. I will update the post when I find out.

Update: Called Fidelity and proposed my amazing idea – transfer the shares into an IRA. This way Cost Basis doesn’t matter since there is no capital gains in an IRA. Denied, against the regulations.

Share This Story, Choose Your Platform!

Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

I contacted the old broker, TradeKing, and they basically said I had to go through all my old statements. What kills me is that if I knew this was going to happen I could have had printed the unrealized gain page.

It’s a real bummer you got no help from both ends in this situation. I work for a software company, netbasis.com, that has designed a product to alleviate the exact headache you are going through. Since you hit an institutional brick wall, we’d like to give you a free demo and save you the time it would take to hunt through all your old statements.

As one who worked with a few different cost basis systems in my 10 year career in finance, I can say that the issues isn’t as easy as “transferring”. Each company maintains the basis info in their own system, and if each firm isn’t in the sharing system (referred to as CBRS) then the data won’t transfer through the ACAT (automated account transfer) system. So I assume you don’t have the purchase confirms or statements handy. Unfortunately, that’s the only way at this point.

I transferred brokers a few times before and the cost basis never carried over. This was before the broker was required to report the cost basis though. I kept all my paper trail. It’s a huge pain to look up when it’s time to do tax, but that’s much better than having cost basis set to 0.

Evan, You hit a sore spot with me. As organized as I am, I lost 10 years of quicken data and had to start over in 2010. There went that basis info. And the basis info at my investment cos. is not always accurate. I usually end up calculating it by hand. (A real pain!)

My Journey to Millions

My Journey to Millions is an 8 year old personal finance blog focused on topics including basic personal finance issues, advanced insurance planning, high net worth estate planning. In addition, there is a particular focus on dividend growth investing and option trading.